on the trade deficit

Kevin D. Williamson on the trade deficit (with China):

American manufacturing wasn’t hollowed out by unfair competition from wily Orientals — it wasn’t hollowed out at all, in fact, U.S. manufacturing output today being far higher than it was during the so-called golden age of the postwar era. Manufacturing wages have remained strong, too. What’s changed is the share of the work force employed in manufacturing, which has declined for several reasons: One of those is growth elsewhere in the economy, especially in the service sector (you know, all those crappy jobs in software companies and investment banks) and another is the fact that our manufacturers have grown much more efficient, requiring fewer (but better) workers than they did a generation ago. Which is to say, manufacturing employment has declined for the same reason agricultural employment did in another era…

China exports two classes of goods to the United States: Consumer goods (all the stuff you see in Walmart labeled “Made in China”) and capital goods, meaning electronic equipment, machinery, and the like used by U.S. companies to produce the goods they sell. So Trump proposes to put a 45 percent tax on people of modest means who buy toys and shoes at Target, and on U.S. businesses looking to invest in real productive capacity here in the United States — i.e., to drop a European-level tax on companies working to employ Americans building stuff here in the United States. That’s a special kind of genius, if by “genius” you mean mud-eating stupidity…

Trade imbalances are not necessarily a bad thing, or even a thing at all. The nice people of Greenwich, Conn., probably buy a lot more steaks from American cattle ranchers than cattle ranchers buy hedge-fund-management services from guys in Greenwich, and the pinstripes in Greenwich don’t feel any poorer for that. (Neither do the cowboys.)  …

If it isn’t tariffs — and it isn’t — why is our trade deficit with China so large? For one thing, China is poor. Its economy has been growing, and it’s far better off than it was a generation ago, but it’s poor in a way that Americans don’t know from poor: The average family income in rich Shanghai is less than $5,000 a year, and in relatively hardscrabble Gansu, it is less than $2,000 a year. A pair of made-in-the-U.S.A. Frye boots costs a month’s pay in China, and very poor people don’t buy a lot of what the United States exports: airliners, software, pharmaceuticals and medical devices, etc. Beijing interferes with trade, of course, but the fundamental economic fact behind our trade imbalance is that the Chinese still aren’t rich enough to buy a lot of the stuff that we Americans make. They buy tons and tons of our soybeans, but they can’t afford very many of our awesome bicycles

Our trade deficit with China isn’t a product of the Chinese getting rich — it’s a product of their being poor. We will not have more-balanced trade with China until Chinese people have a standard of living that is more like that of Americans. Putting a 45 percent tax on American shoppers and people who build computers in the United States (you know who does that? Lenovo, a Chinese company) or build robotics systems using some imported components isn’t going to change any of that. What’s worse, it will exacerbate one of the real problems that U.S-based firms do face: relatively high business taxes. Remember, much of that Chinese trade deficit comes from electronic equipment and industrial machines used by American companies rather than from cheap plastic waterguns, and Trump wants to put a 45 percent materials-and-equipment tax on top of the 40 percent they pay in corporate income taxes.


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One Response to on the trade deficit

  1. Paul Marks says:

    I despise Protectionism – and Mr Trump. However, this pretence that nothing is wrong with American manufacturing will not do – it will not do at all. Most people will greet these claim that all is well with mocking laughter – and they would be correct to do so.

    If people do not face up to the truth that American manufacturing is in terrible trouble (due to the endless taxes, endless regulations, and Credit Bubble financial system) then the cries for Protectionism are only going to get louder.

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